The European Union's partnership approach between unilateral sustainability methods and bilateral trade agreements

List of Key Chapter Titles

1. Issues and Recommendations
2. EU Trade Policy in the Context of Global Economic Turbulence
3. The Rise of Unilateral Sustainability Approaches
4. Good Partnership: Standards and Existing Options
5. Specific Construction of Strategic Partnerships in the Field of Trade and Sustainable Development
6. Evolution of the Global Economy
7. Changes in EU Trade Policy
8. Deficiencies of Trade Agreements as Bilateral Alternatives
9. The Special Case of Due Diligence Obligations
10. Analysis of the Pros and Cons of Unilateral Sustainability Approaches
11. Interconnection of Bilateral and Unilateral Approaches
12. Partnership Options Determined by Agreement Status

Document Introduction

This working paper examines the deep-seated dilemma currently facing EU trade policy. On one hand, the EU is committed to promoting prosperity, competitiveness, and sustainable development through trade; on the other hand, against the backdrop of intensifying global geopolitical tensions and the EU's relative decline in importance to many trading partners, building new political alliances and economic partnerships has become crucial. However, the EU's recent introduction of unilateral sustainability measures implemented along international supply chains (such as due diligence obligations and deforestation-free value chain rules) has triggered strong resistance from major trading partners and even threatens the conclusion of new trade agreements. This tension between the unilateral pursuit of sustainability and the necessity of seeking economic, political, and geostrategic partners constitutes a difficult balance that the EU urgently needs to resolve.

The report first analyzes the evolution of the global economic landscape, including the trend of "slow globalization," supply chain restructuring, and the shift from multilateral (WTO) to regional and bilateral trade agreements. In this context, EU trade policy has also changed. Its free trade agreements have become increasingly comprehensive and deeply integrate sustainable development content, but this has also increased the complexity of internal approval processes and sparked controversy among member states and civil society regarding competitive pressures and sustainability risks. Simultaneously, the EU has turned more towards using unilateral measures (such as the Carbon Border Adjustment Mechanism CBAM, the EU Deforestation-free Regulation EUDR, and the Corporate Sustainability Due Diligence Directive EUCSDDD) to promote its sustainability standards. While these measures are more efficient in terms of internal EU decision-making and can leverage the "Brussels Effect" to create spillover influence, their unilateral nature has also drawn widespread criticism from trading partners, accused of being "neo-colonialist" and violating WTO rules, and may trigger trade diversion and leakage effects, ultimately harming global sustainability goals.

The study provides an in-depth comparison of the advantages and disadvantages of the "Trade and Sustainable Development" (TSD) chapters in bilateral trade agreements and unilateral measures in terms of coverage, enforceability, protection, and compensation mechanisms. The report points out that sanction mechanisms in bilateral agreements primarily focus on competitive harm, making it difficult to quantify and compensate for damage to sustainability itself; whereas the effectiveness of unilateral measures heavily relies on the attractiveness of the EU market and trade flows, and their sustainability impact may become unstable or even counterproductive due to trade diversion.

To address the aforementioned dilemma, the report proposes a path to building "Good Partnerships." This requires creating personalized partnership profiles for the EU's relationships with various trading partners, comprehensively considering the economic and political importance, interdependence, and vulnerability of both sides. Based on this, differentiated partnership plans should be designed according to the different statuses of trade agreement negotiations (ongoing, in force, not yet initiated). Core recommendations include: better linking unilateral measures with incentive and support mechanisms in bilateral agreements, for example, providing enhanced market access in trade agreements as an incentive for products meeting unilateral due diligence requirements; recognizing and integrating partner countries' existing sustainability certification and monitoring systems; more flexibly using market access and market protection as negotiation leverage; and emphasizing dialogue, support, and incentives based on common understanding, rather than relying solely on sanctions.

The report uses the text of the political agreement reached for the EU-Mercosur agreement in 2024 as an example to demonstrate the initial practice of this linkage model, such as linking the unilateral deforestation-free regulation (EUDR) to the agreement through an additional protocol and establishing an incentive-based market access list aimed at promoting forest conservation products. Ultimately, the report emphasizes that in the changing geoeconomic landscape, the EU needs to demonstrate greater flexibility and willingness to compromise. By providing incentives rather than simply imposing restrictions, it can successfully build a network of strategic partnerships that serve its dual goals of trade and sustainability, thereby maintaining its global influence.